West Bengal’s rising reliance on cash transfer schemes, such as ‘Lakshmir Bhandar’ and ‘Banglar Yuva Sathi’, underscores a welfare architecture that is politically strong but economically incomplete. These programmes provide immediate relief, enhance financial inclusion — especially if implemented targeting women — and increase intra-household bargaining power. But, in the absence of a complementary programme on employment generation and productive investment, they might face the prospect of entrenching a consumeristic, consumption-led solution, constraining fiscal capacity and hindering structural change. The welfare gains are tangible but limited.
Lakshmir Bhandar, which is now giving monthly support to more than 2 crore women, has drastically improved household liquidity and reduced short-term vulnerability. Worldwide data show direct benefit transfers are effective in smoothening consumption, reducing income shocks, and promoting poverty reduction, especially when the benefits are paid directly to women (World Bank, 2018). But the same literature is clear that transfers are rarely transformative unless they are directly related to formation or productive use of human capital. In the case of West Bengal, most transfers are unconditional, thus highly consumption-oriented. They alleviate distress but fail to systematically generate assets, skills or firms. The arrival of ‘Banglar Yuva Sathi’ only deepens this concern. Temporary relief through a monthly allowance may help unemployed youth in the short run but it does not go to the very roots of unemployment.
India’s labour market data consistently demonstrate that educated youth face disproportionately high unemployment due to skill mismatches, low industrial absorption, and weak job creation in formal sectors (International Labour Organization, 2023). A stipend is not job-generating, but is essentially a replacement for employment. Over time, such schemes risk creating a cohort that is financially dependent but economically underutilised, especially if such transfers continue without concurrent labour-market reforms.
There is plenty of fiscal arithmetic that encourages caution. West Bengal’s budget for 2026-27 sees a revenue deficit of more than Rs 20,000 crore, for which dedicated expenses — paid by the state, for example, salaries, pensions and interest — already account for the majority of receipts. Its revenue base, based on SGST, excise, stamps, registration and Central transfers, is not too volatile but not elastic enough to accommodate ever-widening entitlements. Debates on state finances have consistently highlighted the high interest burden on West Bengal where there is little room for expansion of capital expenditure spending (Finance Commission of India, 2021). Within these contexts, every extra rupee spent in recurrent transfers generates a distinct opportunity cost — shrinking fiscal space for infrastructure, industrial policy, and employment-aligned investments.
This is the very reason the debate about ‘freebies’ is a wrong move analytically. It is an allocative, not moral, matter. Transfers that generate welfare improvement and vulnerability reduction can be justified in economic terms, especially under conditions of high informality. But when transfers are the central focus of policy rather than an add-on to growth itself, they are a symptom of something more fundamental: the systemic failure of the state to generate enough productive employment. In other words, the state goes from creating income to underwriting consumption. This model can serve to stabilise households in the short term but cannot support long-term economic dynamism.
A credible exit strategy would thus need a redesign, not a rollback. Income-earner support needs to be time-bound and linked, where possible, to labour-market participation or skills acquisition. Wage subsidies would help lower entry barriers for youth into the field — first-time hiring for micro, small and medium enterprises may attract more workers — and spur firms to increase payrolls. Structured urban apprenticeships, backed in part by industry, would bridge the continuing divide between education and employment. Sectoral industrial clusters — especially in textiles, leather, food processing, logistics and light manufacturing — provide avenues for labour-intensive growth if infrastructure, access to credit, and clear regulations are in place. Public investment in urban services and the care economy could also generate on-the-ground jobs while fulfilling unmet social needs.
The state has made a clear signal of intention across MSME support, technical education and public works, but scaling up, building up, monitoring, and controlling the solution will be daunting. Employment generation must be understood as an external measure of value, not as a tacit expectation. Without explicit recruitment objectives, surveillance mechanisms, and role of enterprises, these approaches will risk being marginal elements of the transfer-based system which prevails. As a result, the expansion of welfare in West Bengal is better understood as a response to economic vulnerability that is both necessary and insufficient. It signals both a dedication to social protection and a limitation on productive potential. The political sustainability of such schemes is, in effect, guaranteed; once established, cash entitlements are difficult to withdraw without electoral cost. That only makes it all the more crucial that they should be incorporated into a wider development strategy rather than being used to substitute for one.
The main economic question is not whether cash transfers should exist, but what they are supposed to accomplish. If they’re a bridge — buying time while the state builds skills, infrastructure and enterprises — those measures can support inclusive economic growth. If they become an end-state, they threaten to harden fiscal stress and economic malaise. West Bengal’s policy trajectory, as it stands, tilts towards the latter. Correcting that imbalance will decide whether its welfare model evolves into a foundation for development, or if its balance remains a politically effective but economically fragile equilibrium.
Debdulal Thakur is Dean, Vinayaka Mission’s School of Economics and Public Policy
